THE RIGHT wing tabloids and the Daily Telegraph have whipped up a frenzy over two issues over greater European integration. The furore is over the referendum over the European constitution, and whether Britain should adopt the euro currency.
The euro issue is threatening to shake New Labour to the core, just as it did the Tories under Margaret Thatcher and John Major. Blair could face ‘all-out civil war’ if he opts for an early referendum on the euro, said Denis McShane, the minister for Europe, last week. And McShane is in favour of the euro!
The row is likely to get even more heated as Gordon Brown is due to announce on 9 June whether or not Britain is ready to join the currency. Suddenly the Sun, which only last month was praising New Labour over the war, is now attacking the government for being ‘pro-euro’.
Peter Mandelson, the former minister whose ‘project’ was about making New Labour friendly to the Sun, is condemning those who are ‘anti-euro’. The divide within the British establishment over the euro is really about how best to pursue their interests and profits, not what will benefit ordinary people. Jane Hardy examines how those divisions have come about. IT IS a confusing debate. Most of the tabloid newspapers have been waving the Union Jack ‘to defend our pound’.
Other sections of the press have turned the question into a personal battle between Brown and Blair. The issue is apparently so complicated that the cabinet have been sent away to read 2,500 pages of a 19-volume document prepared by the Treasury.
To complicate things further Brown has talked relentlessly about the economy having to pass five tests, as though joining the euro would be the outcome of some pseudo-scientific process.
It’s necessary to cut through all this mystification. Whether or not Britain joins the euro is a fierce and bitter debate among the ruling class about the way forward for British capitalism. On 1 January 2002 12 European Union (EU) members got rid of their own currencies and introduced the euro as the sole currency.
A single currency means that there are no longer separate national monetary policies. Instead a new central bank, the European Central Bank, has been set up. This conducts European monetary policy. This means a loss of separate national monetary policies – interest rates and exchange rates.
To put this into context we need to go back to 1992 when the European single market came into being. This was a big step for European capitalism because it tried to do two things. First, it allowed market forces to let rip by opening up all industries for privatisation on a huge scale.
Second, it got rid of barriers for capital between different countries. It meant that large firms could operate more freely and with lower costs, moving production and selling goods and services more easily. Government and economists talked about competition, but the reality was that this allowed the massive reorganisation of big business through an orgy of mergers and acquisitions.
However, this project was not complete while countries each had their own currencies. This still meant barriers, higher costs and uncertainty which threatened the profits of big business.
The introduction of the euro was the final step in ensuring that Europe was one large market across which large firms could operate unhindered by costly barriers.
Whether or not Britain should join the euro has caused massive splits among the ruling class. In the camp of those that support joining the euro are those that see a danger of Britain being isolated in terms of trade from the rest of Europe. They are particularly worried about the impact on foreign investment.
Britain has much higher foreign investment than other European countries, and big firms from the US and Japan have threatened to pull out if Britain stays out of the euro. In October the accountants Ernst and Young reported that, while Britain still attracted the highest proportion of foreign investment, its lead has been cut, as has the number of deals.
In 2000 France overtook Britain as the prime location for manufacturing projects. While many big manufacturing firms have lined up with the yes camp, bosses in the financial sector are more split. London accounts for more foreign currency dealing than any other global financial centre. If Britain stays out of Euroland it may make it more attractive for banks to operate in France or Germany.
Despite paying lip service to Europe, Brown is leading the so called euro sceptics. The excuse they give for this ‘not being the right time’ is that European economies are facing slow growth and high unemployment. This would hold back the ‘dynamic’ British economy. The reality is that the dynamism of British capitalism is an illusion. It is extremely fragile because the linchpin of the apparent growth has been consumer credit.
This in turn has been fuelled by the ridiculous escalation of house prices. Fifty percent of mortgages are remortgaging – that is people changing their mortgage and borrowing more to feed spending habits. Brown wants to hang on to two important tools for giving British capitalism a quick fix. One of these tools is interest rates, and the second is the exchange rate.
Altering the exchange rate can be a quick way of reducing prices and stealing an advantage from foreign competitors. He would have to give up both of these tools if Britain joins the euro. The debate about the euro is part of a wider political argument about whether to line up with the US economic power bloc, or an increasingly powerful EU. The new euro is now one of the strongest currencies, second only to the dollar.
While not lining up with the Little Englanders we must be clear that the euro is not in the interests of ordinary working people – it is part of a bosses’ Europe. The wider project of monetary integration serves the interests of those in big business. Cutting public spending has been at the centre of this, and in particular attacking pensions.
The recent strikes in France show the way forward. We want workers’ unity, solidarity that is based on the interests of working people not the bosses.
BOTH SIDES in the euro debate defend their position by saying their strategy would lead to more investment in Britain and jobs. In fact most foreign investment in Britain is about buying up existing firms, not new development. The British rich invest more abroad than they do at home – some 39 percent of the UK’s direct investment abroad is held in the US, and almost as much, 31 percent, is in Europe.
So different businesses can be pulled different ways. Privately, both the Confederation of British Industry (CBI) and the Engineering Employers Federation believe the balance of business opinion is tipping away from joining the single currency.
The engineering bosses’ scepticism contrasts with a survey of its members last September that showed increasing support for joining the euro. The CBI believes that the UK should only join the euro provided that there is ‘greater labour market flexibility’. The British Chamber of Commerce argues a ‘wait and see’ policy.
Yet the Federation of Small Businesses is firmly against, saying, ‘Britain should not adopt the euro now, or for the foreseeable future.’ Neither side wants to ‘lose out’. By this they mean the chance to increase their profits and ram through privatisation, and making workers pay for it.
Every working class person will feel the pressure
Two inspiring strikes show the way forward